Writing Resources
Macroeconomics is defined as the study of economics in relation to the whole exploring a variety of factors Unlike Microeconomics which places its focus on aggregated sectors Although macroeconomics encompasses a broad field it may be loosely broken down into two disciplines the business cycle and economic growth The business cycle involves the examination of cause and effect of short term fluctuations Whereas economic growth examines the factors which help determine long term growth In the case of Home Depot the CEO is convinced that financial analysis should hinge only on what is happening internally within the company The task set forth is to provide a substantive argument to persuade him otherwise Analysis of the Implications of Interest Rate Changes Changes in interest rates an external factor for which the company has no control provide a convincing case as to why the CEO should not focus solely upon internal factors regarding financial analysis Interest rates are incorporated in determining the company's weighted average cost of capital WACC This figure is utilized in several financial analyses For example WACC is applied when calculating the present value of estimated future cash flows FCF Previous analysis of the FCF indicates a negative present value when the interest rate is 8 This is calculated by using the formula PV FVN 1 I N where I is the interest rate and N is the number of years Changes in the WACC would therefore cause a change in the present value PV For example if interest rates decline from 8 to 5 the present value would change from negative 425 78 million to negative 460 69 million
